SUPPLY CHAIN MANAGEMENT OF
(COLGATE PALMOLIVE)
INTRODUCTION OF THE COMPANY The Company was incorporated on 23rd September 1937, as a private limited company. The Company Manufacture and market dental care products (dental cream and tooth powder), hair care products (hair oils, shampoos, brilliantine) and other personal care products such as shaving creams, and lotions, face creams, baby powder, talcum powder, etc. The products are marketed under the trademarks "Colgate". "Palmolive”, “Halo" and "Charmis". - A distribution set up was also developed on an all-India basis with warehouse facilities in Mumbai, Chennai and Calcutta. Colgate-Palmolive Company, U.S.A. supplemented this reinvestment by providing, technical assistance, new product information and its worldwide developments in quality dental care and other personal care products. The Company has its own research and development facilities. Colgate-Palmolive is one of the leading global consumer products companies in the world with employing 40,000 people in more than 200 countries and territories. They provide quality consumer products in the areas of Oral Care, Personal Care, Home Care and Pet Nutrition under widely recognized, famous brands such as Colgate, Palmolive, Ajax, Protex, Irish Spring, Soft-soap, Simply W hite and Hill’s Science Diet. They are the global leader of oral care, liquid soaps and underarm protection. In other categories, their brands encompass a range of products that play a familiar role in daily hygiene all over the world. Colgate-Palmolive entered China in 1992. They were proud to have been a part of the development of China for nearly two decades. Today, they have commercial offices and manufacturing sites in Guangzhou, Beijing, Shanghai, Chengdu, Yangzhou and Hong Kong with more than 5,000 employees. Their Huangpu Plant based in Guangzhou and Sanxiao Plant in Yangzhou has become the largest toothpaste plant and toothbrush plant in Colgate globally. In addition, they have part of
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the Global Technology Center, Global Procurement and Greater Asia Colgate Innovation Center.
SUPPLY CHAIN MANAGEMENT The company sells oral care, personal care, home care, and pet nutrition products throughout the world with the help from the SAP Supply Chain Management application; the company has significantly enhanced its global supply chain planning processes. Colgate has used this and other SAP software to improve the quality, timeliness, and accessibility of its data and automate its supply chain processes. As a result the company is more demand driven and globally integrated.
WHY SAP WAS SELECTED 1. Strategic partnership with SAP that aligns with Colgate’s global IT strategy. 2. Ability to leverage existing SAP software and ongoing R & D investment by SAP.
3. Enterprise - wide data for business decision. 4. Extensive planning and execution functions.
5. Support for financial planning and analysis. 2|Page
6. Support for collaboration with suppliers and customers.
KEY CHALLENGES 1. Standardized processes for global supply chain management. 2. Align consumer, professional, and retail programs.
3. Increase focus on near term demand signals and respond quickly to unexpected demand. 4. Tie replenishment and orders to downstream demand rather than high level forecast.
FINANCIAL AND STRATEGIC BENEFITS
1. Streamlined vendor managed inventory. 2. Improved the granularity and timeliness of customer data. 3. Reduced manual orders. 4. Helped planners spend more time analyzing business impacts and less time cleansing data. 5. Increased products in stock for promotions via effective forecasting and planning.
6. Gained access to a global network of experienced resources.
OPERATIONAL BENEFITS 1. Increased customer order fill rate.
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2. Increased forecast accuracy. 3. Reduced inventory. 4. Raised inventory accuracy to more than 99%. 5. Streamlined put away and picking processes. 6. Increased on time, complete, vendor managed inventory (VMI) orders 7. Cut VMI planning cycle from 5 days to 1 day.
CREATING A GLOBAL SUPPLY CHAIN THROUGH STANDARDIZED PROCESSES AND SOLUTIONS Colgate’s SAP R/3 implementation began in 1994, providing a platform for responding to global customer requirements through better understanding of costs and prices, for analyzing sourcing options, and for determining competitive strategies. With this SAP R/3 execution framework in place, Colgate embarked on an ambitious plan to streamline its global supply chain planning processes. Implementation of this plan would not only enable significant operational improvements in service and inventory reduction, but also position the company to move from regional sourcing to a globalized model. This supply chain strategy – allowing for a breakthrough in production efficiencies and economies of scale – required full visibility of supply and demand information worldwide and a highly responsive supply chain planning process. These essential characteristics of Colgate’s supply chain are being enabled by the optimization, scheduling, and collaboration capabilities of SAP APO in Supply Chain Management “The capabilities of SAP APO are critical to enabling Colgate to take the next logical steps in enhancing global supply chain performance,” says John Giroux, Colgate’s director of global IT strategic planning. “SAP APO delivers solutions on 4|Page
three key fronts they gain visibility to global logistics data, optimize our operations through use of advanced mathematical planning functions, and provide a platform for collaboration with customers and partners. By making use of SAP APO, our worldwide operations are truly progressing toward excellence in supply chain planning.” The anticipated savings continue to be facilitated by supply chain programs and the enterprise-wide SAP software. The broad global reach of its products, coupled with these continuing margin improvements, enables reinvestment in growth-building activities and confers on Colgate a sustainable competitive advantage.
SUPPLY CHAIN CHALLENGE In 1993, Colgate recognized that it faced lack of standardization in systems and data throughout the world and incurred costly duplication of effort on many fronts. The company had inventory levels that were unnecessarily high, order-related cycle times that were excessively long, and IT and other costs that were much higher than they would be with global standardization of systems and data. In 1994, Colgate began its SAP R/3 implementation, which enabled the company to improve operations through consistent, global support for financial analysis, logistics planning, and other business processes. Moreover, a complementary standardization mandate came from senior management that covered all general naming conventions, formulas and raw materials, manufacturing data and processes, and financial information. These standardization initiatives supported by SAP systems contributed to tremendous improvements in efficiency. For example, in the operations arena, these efforts supported substantial consolidation of manufacturing facilities. Colgate has now implemented SAP R/3 in 49 countries covering 80% of its business, and by early 2002 will be managing 95% of its global operations with SAP R/3. While SAP R/3-enabled efforts produced significant results, the competitive pressures in Colgate’s global markets have driven the company to seek further Improvements using my SAP SCM: • On-time and complete customer order fulfillment had been improved from very poor levels to rates of around 90%. However, these rates were hampered from further improvement by inadequate visibility into capacity constraints and demand, and the continuing lack of product availability meant potentially losing 5|Page
out on revenue opportunities. Moreover, these fulfillment rates were still significantly below the increasingly stringent requirements of large customers. • The replenishment order cycle time had been reduced from nine days to five days in North America. Howev er, Colgate’s order cycle times elsewhere in the world remained much longer, and competitors were gaining significant ground on this service metric that customers were finding increasingly important. Moreover, the long order cycle times represented unacceptably high internal costs to Colgate “The capabilities of SAP APO are critical to enabling Colgate to take the next logical steps in enhancing global supply chain performance,” says John Giroux, Colgate’s director of global IT strategic planning. • Reductions in inventory had been achieved, including an increase in turns per month for finished goods inventory in North America. However, internal inventory costs remained unacceptably high, and the high inventory levels were indicative of the limited visibility that continued throughout Colgate’s supply chain operations. • Despite various reductions in capital and expenses that had been achieved, price competition continued to drive a focus on cost reduction. Plant operations, packaging, and transportation costs were all targets for further reductions. Finally, the very source of Colgate’s competitive advantage created supply chain challenges. Rapid global introduction of new products, the needs for customization, and services to global customers created continued complexities for the company’s supply chain.
IMPLEMENTATION While brands in Colgate have been managed globally, the company realized it must also manage demand and supply on a worldwide basis. The Colgate Global Supply Chain initiative began in November 1999 with the objective of building on the company’s investment in its core SAP R/3-enabled business processes in order to further improve supply chain performance. These performance improvements would be achieved by focusing on the fundamentals – globally standardizing internal supply chain and business-to-business processes, implementing shared services, sourcing strategically, and implementing cost reduction programs. Colgate identified three major supply chain strategies to achieve the company’s goals:
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• Roll out a vendor -managed inventory (VMI) program with key accounts to drive significant channel inventory and cycle time improvements. • Implement Cross-Border Sourcing (CBS), a global planning initiative to enable Colgate to move from a regional to a global sourcing model, thereby driving forecast improvements and safety stock reductions, enabling consolidation of assets, and taking advantage of economies of scale on a worldwide basis. • Implement collaborative planning, thus enabling development of a closed-loop process to manage promotional demand and synchronize activities throughout the supply chain. 1. Vendor-Managed Inventory:
VMI is a pull process by which Colgate replenishes customer distribution centers (DCs) based on daily transmitted inventory and demand information. The current focus on VMI is in North America, where 40% of shipped cases from five plants are managed using VMI. The implementation includes 40 customer DCs at 12 customers, covering all categories of Colgate products (about 1,000 SKUs). As supply and demand are more precisely matched, this VMI implementation enables lower finished goods inventories, higher rates of on-time and complete orders, and reduced replenishment cycle times. The VMI business process is supported by supply network planning (SNP) in SAP APO. Daily inventory levels and demand from customer DCs are transmitted to SNP, which calculates replenishment orders. SNP incorporates plant capacity information to determine production requirements and any supply constraints. The replenishment orders are transmitted back to the customers via electronic data interchange (EDI) for acknowledgement and for handling the customers’ information processing requirements. The benefits of VMI will be multiplied as implementation extends toward all transacted business in North America and to other geographic regions. 2. Collaborative Planning:
The demand planning (DP) capabilities and collaborative engine in SAP APO provide the Colgate sales subsidiary with a mechanism for communicating demand information to the supplier and further synchronizing planning across the supply chain network. For example, collaborative planning, forecasting, and replenishment (CPFR) is being deployed by Colgate by making use of SAP APO 7|Page
tools with customers, enabling collaboration on promotional activity, inventory levels, and demand forecasts. The associated CPFR processes can drive forecast accuracy improvements and thereby enable a range of cycle time and customer service improvements. In particular, statistically computed-base demand is calculated by DP and can drive repeatable replenishment processes, and changes resulting from promotions can be incorporated using collaborative processes. The support that the collaborative process provides for separate management of base and promotional demand is very valuable. Promotional demand management is substantially independent of the base demand, and it is critical information for driving manufacturing, product finishing, and distribution in Colgate’s consumer products business. To support the collaborative process covering promotional demand, the collaboration engine allows the exchange of up-to-date planning information, enables user-access security restrictions, supports exception-based management, and facilitates tracking of performance measures including forecast accuracy.
OUTCOME The SAP APO-supported supply chain implementations have achieved significant, measurable benefits for the initial America based implementations. The competitive position of Colgate’s business has been enhanced – by improving service to the retail trade and internal customers, enhancing responsiveness, and improving margins. Colgate has achieved performance gains with SAP APO beyond what had already been achieved with SAP R/3, and the company is well-positioned for multiplying the benefits across the global enterprise. The benefits achieved across the three initiatives include: 1. Vendor-Managed Inventory: The SNP-enabled VMI process has enabled improvements to 98% in on-time and complete orders and an improvement to a one-day replenishment order cycle. In the eyes of Colgate’s customers and partners, these improvements are very significant. The previous SAP R/3enabled achievements of 70% on-time and complete orders for VMI and the five-day replenishment order cycle would not have been acceptable in the unfolding competitive environment.
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2. Cross-Border Sourcing: The initial single-country implementation of CrossBorder Sourcing enabled the replenishment order cycle time (which includes time for order preparation, processing, and shipping) to be reduced from 62 days to 33 days. Supply and demand were more accurately matched, so there was a significant increase in shipments per month, a reduction in inventory by about 22%, and an increase in case-fill rates from 94% to 97%. CBS yielded a significant improvement in on-time and complete orders for intercompany replenishment, and customer order fulfillment increased to 95%.
3. Collaborative Planning: Responsiveness to promotions and other changes in supply and demand have been enhanced due to the closer link between producers and consumers. Improvements in cycle times, fulfillment performance, and inventory levels were supported through enhancements enabled by DP and the collaborative engine. In particular, forecast error with a major retailer was reduced from 61.9% before CPFR to 21.9% after CPFR was implemented. All three initiatives were supported by SAP APO’s real -time integration model, where any changes in stock, sales orders, and so on are transferred in real time between customer or internal ERP systems and SAP APO. This ensures that modifications to the plan can be made rapidly – which is particularly important to facilitate planning for promotions. The VMI, CBS, and collaborative planning implementations will be extended globally. As these implementations are extended to all brands and plants, Colgate expects to multiply the impact of the current implementations substantially. Moreover, savings are being achieved outside direct supply chain operations, including in key areas such as IT.
NEXT STEPS Colgate intends to continue to pursue supply chain improvements that will enhance its competitive position. In addition to extending the use of vendor-managed inventory, cross-border sourcing, and collaborative planning globally, Colgate is pursuing: 1. Repetitive manufacturing: Colgate is working with SAP to implement repetitive manufacturing processes using the PP/DS capabilities in SAP APO. These processes will perform repeated production runs using a single bill of material, with back flushing of material requirements. Production will become more 9|Page
responsive to promotion-driven demand changes, as making and finishing operations will be distinguished as separable manufacturing processes, facilitating quick production scheduling changes. Colgate is specifically supporting development of a PP/DS-related Wave algorithm. This algorithm will provide optimization of repetitive manufacturing during potential sudden peaks and valleys in requirements and finite capacity constraints. 2. Outsourced manufacturing: Due to the variations in supply requirements resulting from the promotions-driven environment, third-party manufacturing contractors are increasingly relevant to Colgate’s business. Colgate expects to make use of SAP APO enabled collaborative planning links with these contractors.
3. Transportation planning: Colgate is planning to implement Transportation Planning/Vehicle Scheduling (TP/VS) in SAP APO to optimize its transportation network and derive ongoing cost savings. 4. Supply chain event management: Colgate is planning to use SAP supply chain event management capabilities to track carrier tendering and customer shipments – and to provide early warning of undue delays or problems. 5. Additional collaborative scenarios: Colgate will pursue various additional forms of collaboration with customers and partners. Of significance will be Colgate’s participation in consumer goods i ndustry e-marketplaces, which provide exchanges for collaborative demand, procurement, and logistics planning.
Supplier Code of Conduct Colgate people worldwide take enormous pride in our reputation for integrity and the business success that our reputation has enabled. This reputation has taken years to build and maintaining it is vital to our success. This Colgate Supplier Code of Conduct has been developed to convey to all current and future vendors, suppliers, contractors, consultants, agents and other providers of goods and services (our “suppliers”) Colgate’s expectation for all of our suppliers to adhere to the highest ethical standards when conducting business. Colgate suppliers are required to take reasonable steps to ensure that this Colgate-Palmolive Company Supplier Code of Conduct is communicated 10 | P a g e
throughout their organizations and to make this Code available to their employees and throughout their own supply chain. Colgate values its business relationships with suppliers and requires its suppliers to share our commitment to, at a minimum, compliance with the following standards: 1. Antitrust/Competition Law: It is Colgate’s policy that all suppliers comply fully with competition laws (known as antitrust laws in the U.S.) applicable to them. Competition laws ensure that companies compete to get business by offering lower prices, innovative products and better service and not by interfering with the market forces of supply and demand. Colgate requires that all suppliers conduct their business in full compliance with all applicable laws intended to promote free and fair competition. 2. Confidential/Proprietary Information: Suppliers must respect Colgate’s intellectual property, trade secrets and other confidential, proprietary or sensitive information and may not use or disclose any such information except in accordance with their contract with Colgate and for the benefit of Colgate. Any information or data regarding Colgate operations shall be treated by suppliers as confidential at all times unless that information enters the public domain through no fault of the supplier. The supplier’s obligations with respect to Colgate’s confidential or proprietary information include:
• Not to disclose this information to other people within the supplier’s organization except on a strict “need to know” or “need to use” basis. • Not to disclose this information to persons outside of the supplier’s organization. • Not to use this information for the supplier’s ow n benefit or the benefit of any other person. 3. Ethical Dealings: Honest dealing with customers and suppliers is essential to sound business relationships. Colgate seeks to give all potential suppliers fair consideration. Decisions are based on objective criteria such as price, quality, and service capability as well as a vendo r’s reliability and integrity. Giving or receiving any kick backs, bribes or similar payments of any sort is prohibited. Our suppliers are required to demonstrate these same high ethical standards and to conduct all business transactions with integrity and fairness. 11 | P a g e
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